CB European Quality Fund Quarterly update 31 December 2015 Included - - PowerPoint PPT Presentation

CB European Quality Fund

Quarterly update 31 December 2015

Morningstar Sweden and Dagens Industri: Best portfolio manager in the European equity category 2012 Included in Morningstar Sweden’s model portfolio for the Swedish Pension system (PPM) since January 2015

Q4 2015 +7.9% YTD 2015 +18.1% Fund inception 1995 (annualised) +7.9% AUM (million) 67.9.

Fund performance* and AUM NAV, 31 December 2015 (EUR)

+5.7% +14.7% +7.9% 622.7.

EUR SEK

Sicav A 103.11 Sicav D 91.73 Sicav I 134.28 *Sicav A

The strategy and the team

CB European Quality Fund

• Company founded in 1994
• Family owned, acting under the supervision of the Swedish

Financial Supervisory Authority

• Guidelines: active, ethical and long-term
• An ethical and sustainable framework is applied in the portfolio

management

• The team is based in Stockholm, Sweden; all fund administration

is performed in Luxembourg

Overview - CB Fonder

• A long-only equity fund with a focus on European quality growth

companies

• The strategy was launched in 1995
• Concentrated portfolio (20-33 holdings) and a long-term perspective
• Benchmark: MSCI Europe Net
• Objective: Lower standard deviation than benchmark
• Objective: Outperform benchmark over 12 months

Overview - CB European Quality Fund

2

The team

Carl Bernadotte

Portfolio manager & owner >25 years’ experience Born 1955 Owns shares in CB European Quality Fund

Marcus Grimfors

Portfolio manager 7 years’ experience Born 1981 Owns shares in CB European Quality Fund

Alexander Jansson

Portfolio manager & CEO 7 years’ experience Born 1983 Owns shares in CB European Quality Fund

Erik Allenius Somnell

Business development 3 years’ experience Born 1984 Owns shares in CB European Quality Fund

Strategy: Investment criteria

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3

Large/mid caps

• Min. market cap EUR 1 bn -

Primary

Mature industries

• Proven management -

Resilient profit growth

• In any econ. environment -

Secondary

Stable dividend yield

• Not necessarily high -

Conservative valuation

• History & peers -

Internal recruiting

• Subject to tradition -

Strategy: Structural growth is more value creating than cyclical growth

CB European Quality Fund

4

Credit: Allianz GI Design: CB Fonder

• And less dependent of the economic cycle

Stable profit growth Structural growth is independent of the economic cycle Drivers:

• Secular trends
• Leading business model
• Technical leadership

Strong multiple expansion relative to the market Structural growth component Cyclical growth component

Purely driven by macro factors

Limited multiple expansion relative to the market

Structural vs. cyclical growth

Cyclical model Structural model

Strategy: High barriers to entry protected growth

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Competetiveness: Porter’s 5 forces-model

Competitive rivalry among incumbents

Threat of new entrants Threat of substitute products or services Bargaining power of customers (buyers) Bargaining power

• f suppliers

Barriers to entry

• Cost, time, knowledge
• Economies of scale
• Technologies, patents etc.

Customer/client relationship

• Degree of customer loyalty
• Switching costs
• Pricing power

Barriers to substitution

• Brand recognition
• Product complexity, patents etc.

Negotiating power versus suppliers

• Fragmentation of suppliers
• monopoly to perfect competion
• Degree of specialisation

Source: Competitive Strategy: Techniques for Analyzing Industries and Competitors, Michael E. Porter, 1980. Design: CB Fonder

Strategy: Stock selection according to a bottom-up-strategy

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Fundamental analysis Quantitative analysis Technical analysis

• Structural growth and barriers to

entry/moat – see p. 4 and 5.

• Business idea – robust enough to deliver

stable profit growth over an entire economic cycle?

• Management – do they deliver as

promised?

• Internally developed models for

screening and ranking based on quantitative variables.

• Valuation: in comparison to peers and

the company's own history and growth rate.

• Main multiples: P/E, P/B and PEG.
• Momentum factors – is the short-term

trend supportive of the sector/style?

• No target prices: ”let the trend be your

friend”.

• Timing for entry and exit levels;

increasing and reducing portfolio positions.

The fundamental and quantitative analysis forms the investment universe. The technical analysis plays a crucial role for the weighting of the portfolio.

95 100 105 110 115 Sep-15 Oct-15 Nov-15 Dec-15 CB European Quality Fund Sicav A MSCI Europe Net

• 4%
• 2%

0% 2% 4% Sep-15 Oct-15 Nov-15 Dec-15 CB European Quality Fund Sicav A vs MSCI Europe Net

• 2%

0% 2% 4% 6% 8% 10% 12% Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 CB European Quality Fund Sicav A vs MSCI Europe Net 90 95 100 105 110 115 120 125 130 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 CB European Quality Fund Sicav A MSCI Europe Net

Performance: The fund and the index

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• The fund gained +8% in the forth quarter and during the last 12 months the fund has gained +18%.
• The fund outperformed MSCI Europe Net during all four quarters. Our quality growth strategy outperformed in

both a rising market in Q1 and Q4 2015 (+0.5% and +2.4% outperformance respectively) as well as in a falling market in Q2 and Q3 2015 (+0.8% and +5.1% outperformance respectively).

The fund and the benchmark index, 1 year (EUR) The fund and the benchmark index, Q4 2015 (EUR)

+9.1% +18.1% +8.2% +7.9% +5.3% +2.4% Source: MSCI, CB Fonder

50 75 100 125 150 175 200 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 MSCI Europe Net (EUR) CB European Quality Fund Sicav A (EUR)

Key ratios (10 years)* EQF Index

Performance, % Standard deviation, % Sharpe (0%) Max drawdown, % Beta against MSCI Europe Alpha against MSCI Europe, % p.a. Consistency with MSCI Europe, % Tracking error, % Information ratio +59.0 13.02 +0.36

• 45.78

+0.70 +1.79 52.5 8.73 +0.06 +51.2 15.26 +0.28

• 54.10

Performance: The fund and the index

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The fund (EQF) and the benchmark index, 10 years (EUR)

Source: MSCI, CB Fonder *Data as of 31 December 2015

The fund has

• utperformed

the benchmark index, and has due to its lower risk (beta: 0.70) generated a significant positive alpha. The fund’s risk-adjusted return, Sharpe, is higher than that

• f

the index.

• 0,2%

0,0% 0,2% 0,4% 0,6% 0,8% 1,0%

The Portfolio: Contributors and detractors

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Company Contr./Detr. %

• Avg. weight*, %

Performance, %

Top three quarterly contributors and detractors, Q4 2015 (EUR)

*Average values in Q4 2015. Source: Bloomberg, CB Fonder

Continental AAK Assa Abloy Intrum Justitia Next Plc Handelsbanken +0.83 +0.81 +0.77

• 0.05
• 0.10
• 0.14

+18.1 +18.1 +21.4

• 1.1
• 2.8
• 3.7

4.8 4.8 3.9 0.9 5.2 2.2

• German Continental – mostly know for their tires but also a leading player in powertrain systems and through that also leading in development of e.g.

electric and driverless cars – held their capital markets day (CMD) in Q4 at which the company confirmed its medium-term goals, e.g. that the Powertrain division should generate a €10 billion turnover with a 10% operating margin by 2019. The company is positioned to gain from several structural growth trends: safety, fuel efficiency and ”internet of cars”. The stock gained 18% during the quarter, in EUR.

• The vegetable oil refiner, AAK (previously AarhusKarlshamn), painted a positive picture of the company’s growth opportunities going forward at their CMD.

An exciting area that was highlighted was TROPICAO, a solution chocolate producers can use to avoid heat-related bloom issues. The stock gained 18% during the quarter, in EUR.

• Assa Abloy – global market leader that installs every tenth lock in the world – repeated its goal at the CMD of 5% annual organic growth as well as 5%

growth through acquisitions; a growth rate matched by few in todays’ economic climate. A structural growth trend that the company is exposed to is digital locks, where a big advantage is that installations already made by Assa (installed base) generates 75% of sales. The stock gained 21% during the quarter, in EUR.

• The Swedish debt collection firm Intrum Justitia announced during the quarter that they had sacked their successful CEO Lars Wollung. The firm was very

vague in their communication of the decision, but stated that it had to do with different views on the future of the company. We sold our entire position after the announcement. The stock lost 1% during the quarter, in EUR..

• The Brittish clothing retailer Next was pressured (as was the whole industry) by warm weather in Q4 which caused a slow start of winter collection sales.

Our take: temporary setback. The stock lost 3% during the quarter, in EUR.

• In Q4, Svenska Handelsbanken made something for them very unusual: they missed expectations quite significantly in their Q3-report. We perceive this

as a warning signal and a possible symptom of a harsher business climate. The stock lost 4% during the quarter, in EUR.

8% 9% 4% 7% 11% 8% 7% 7% 4%

• 2%
• 1%
• 3%

1% 2%

• 4%
• 2%

0% 2% 4% 6% 8% 10% 12% 2011 2012 2013 2014 2015E Average 11-15E 2016E CB European Quality Fund Stoxx600

14% 17% 10% 10% 14% 13% 10% 1%

• 6%
• 6%

2% 0%

• 2%

7%

• 10%
• 5%

0% 5% 10% 15% 20% 2011 2012 2013 2014 2015E Average 11-15E 2016E CB European Quality Fund Stoxx600

The Portfolio: Holdings

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Source: MSCI, Bloomberg, FTSE, Dow Jones, STOXX, Factset, CB Fonder

The portfolio as of 31 December 2015 Revenue growth, the portfolio and Stoxx600 EPS-growth, the portfolio and Stoxx600

Included in one or more of the following sustainability indices:

• FTSE4Good Index
• Dow Jones Sustainability Europe Index
• STOXX Europe Sustainability Index

Company Country Sector Market cap € bn Share of AUM Share of MSCI Europe Fresenius AG Germany Healthcare 33 6.2% 0.3% Continental Germany Consumer Discr. 41 4.9% 0.3% Sampo Finland Financials 25 4.9% 0.3% AAK Sweden Consumer Staples 3 4.8% 0.0% Next UK Consumer Discr. 14 4.7% 0.2% Orpea France Healthcare 5 4.5% 0.0% Novo Nordisk Denmark Healthcare 134 4.4% 1.5% Halma UK IT 4 4.4% 0.0% Legrand France Industrials 13 4.3% 0.2% Assa Abloy Sweden Industrials 20 4.0% 0.3% Reckitt Benckiser UK Consumer Staples 57 4.0% 0.8% Kerry Ireland Consumer Staples 13 3.9% 0.2% Shire UK Healthcare 34 3.8% 0.5% Prudential UK Financials 48 3.5% 0.7% Henkel Germany Consumer Staples 38 3.4% 0.3% Bunzl UK Industrials 8 3.4% 0.1% Dignity UK Consumer Discr. 2 3.4% 0.0% Capita Group UK Industrials 10 3.3% 0.2% Geberit Switzerland Industrials 11 3.1% 0.2% Essilor France Healthcare 24 2.8% 0.3% Nestlé Switzerland Consumer Staples 210 2.7% 3.0% DSV Denmark Industrials 7 2.3% 0.1% Ingenico Group France IT 7 2.3% 0.1% Novozymes Denmark Materials 13 2.0% 0.2% Handelsbanken Sweden Financials 23 1.6% 0.3% Wirecard Germany IT 6 1.6% 0.0% Schindler Switzerland Industrials 16 1.5% 0.1% Spirax Sarco UK Industrials 3 1.2% 0.0% Total/Average 29 96.6% 10.0%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Cash IT Consumer Discr. Health Care Materials Industrials Consumer Staples Financials

11% 14% 15% 12% 22% 4% 6% 6% 5% 4% 23% 22% 19% 13% 10% 8% 2% 0% 0% 0% 3% 0% 10% 20% 30% MSCI Europe CB European Quality Fund

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Cash Finland Ireland Denmark Netherlands Sweden Switzerland Germany France UK

The Portfolio: Exposure, share of AUM

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Source: MSCI, Ishares, CB Fonder

Geographical exposure, 36 months Sector exposure, 36 months Geographical exposure, as of 31 December 2015 Sector exposure, as of 31 December 2015

30% 14% 15% 4% 3% 15% 1% 1% 31% 16% 14% 10% 9% 7% 5% 4% 3% 0% 10% 20% 30% 40% MSCI Europe CB European Quality Fund

Case: Fresenius

Among other things, the leading private operator of hospitals in Germany

• A global health care group with operations in dialysis, clinical nutrition, hospital management and project/management

business of health care facilities.

• Defensive growth: all businesses are exposed to structural growth trends supported by demographics and growing per-

capita healthcare consumption.

• Diversified growth: the company derives it’s earnings from numerous businesses that have quite distinct dynamics –

that brings diversification and a quite unique profile within the sector.

• 22 consecutive years with increased dividend!

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Source: Fresenius

Revenues, total and by region Organic growth – track record

Case: Orpea

• European leader in dependency care (with attractive

real estate holdings) – a structural growth sector due to demographics.

• Opportunity, and aim, to consolidate a fragmented

sector.

• Pricing power owing to local regulation.

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Source: Orpea, CB Fonder

Number of beds Revenues, m€ Geographic exposure – focus on Europe Organic growth – track record

14% 11% 15% 11% 9% 9% 8% 7% 6% 0% 5% 10% 15% 20% 2006 2007 2008 2009 2010 2011 2012 2013 2014 Organic growth

39 47 58 69 94 120 127 146 169 156 189 222 255 298 366 420

100 200 300 400 500 1999 00 01 02 03 04 05 06 07 08 09 10 11 12 13 2014

Underlying EPS, pence

Case: Next

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Source: Next, Deutsche Bank Research, CB Fonder

”H&M in UK”

• British clothing retailer founded in 1982. Offers

clothing for women, men and children as well as a Home collection (furnishing).

• >500 stores in UK and Ireland and almost 200 stores in

more than 40 countries worldwide

• Has been offering next day delivery for online

customers since 2001; 80% of the Home segment is sold online.

• 7.4 % EPS CAGR and 7.9 % DPS CAGR over the last

10 years. Very consistent EPS-growth

Source: Next, CB Fonder

Unemployment down wages up UK consumer spending up

Source: Deutsche Bank Research

0,2 0,4 0,6 0,8 1 1,2 0,0 0,2 0,4 0,6 0,8 1,0 1,2 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 0% 10% 20% 30% 0% 10% 20% 30% Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 CB European Quality Fund MSCI Europe

Risk profile: Standard deviation and beta

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The fund’s standard deviation is consistently lower/in line with that of the benchmark index, MSCI Europe. This becomes particularly evident when the risk in the market is rising.

Standard deviation*

The fund’s beta is consistently below 1

Beta against MSCI Europe*

*36 months data on a 60-day rolling basis (EUR); Source: MSCI, CB Fonder

18.3% 16.4% +0.84

0% 20% 40% 60% 80% 100% Active share 0% 2% 4% 6% 8% 10% 12% Tracking error

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Active Share Tracking error, 60-day rolling basis

• Active

share for the portfolio is consistently above 90%, which indicates that the portfolio, composition-wise, deviates more than 90% from the benchmark index. The limit for what is perceived as active management is usually set at 60%.*

• The fund’s tracking error is also high

and has been above 6% on average the past years.

Hence, the fund is located in the top right corner in the management type-matrix

*Model by Cremers och Petajisto (2009)

Risk profile: Deviation from index

High Low

Active share Tracking error

Low High

Diversified stock picks Closet indexing Concentrated stock picks Factor bets

CB European Quality Fund

Types of management*

40 60 80 100 120 140 MSCI Europe Net

Risk profile: The fund’s ability to preserve capital

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The fund has consistently outperformed the index during drawdowns

• The fund’s objective is to marketperform in a rising market and outperform during drawdowns; that will over

time generate alpha. The fund compared to MSCI Europe Net during the largest drawdowns (EUR)

1 2 3 4 6 5

The fund outperformed also during the last drawdown, this time by +7.6%

Source: MSCI, CB Fonder

• 50%

0% 50% 100% 150% 200% 250% 300% Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Dec-14 MSCI EM vs MSCI Europe

• 50%

0% 50% 100% 150% 200% 250% 300% 350% dec-69 dec-74 dec-79 dec-84 dec-89 dec-94 dec-99 dec-04 dec-09 dec-14 MSCI Sweden vs MSCI Europe

Analysis: Allocation – Europe versus EM and Sweden

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• MSCI Sweden has been an amazing

market for many years and has

• utperformed the MSCI Europe index

massively.

• Part of the explanation is to be found in

the many and successful exporting companies, that prospered during the boom years in EM (2002-2012).

• Since 2012 – when the boom in EM

started to fade – Sweden has underperformed Europe.

MSCI Sweden relative to MSCI Europe, same currency

• Emerging markets (EM) outperformed

Europe massively during the period 1998-2012.

• Europe has outperformed against

emerging markets during the last two years, but has so far only regained a fraction of the lost ground.

MSCI Emerging Markets relative to MSCI Europe, same currency

Source: MSCI, CB Fonder

Analysis: Allocation – Europe versus the U.S.

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MSCI Europe relative to MSCI USA. Periods of out-/underperformance MSCI Europe relative to MSCI USA, same currency

• Europe has four pronounced periods of

underperformance against the U.S., all

• f

which have bottomed when the accumulated underperformance reached ~40%. This time Europe has underperformed by 43%!

• A new

period

• f outperformance

stands before Europe? Never before (with data going back to 1969) has Europe underperformed more than current levels. The duration (see table) also speaks for Europe.

From To Duration Months

1 975- 02- 28 1 976- 1 0- 29

• 1

8% 30%

• 37%

20 1 976- 1 0- 29 1 978- 1 0- 31 76%

• 4%

84% 24 1 978- 1 0- 31 1 985- 02- 28 34% 1 32%

• 42%

76 1 985- 02- 28 1 990- 1 0- 31 283% 90% 1 02% 68 1 990- 1 0- 31 1 999- 06- 30 224% 451 %

• 41

% 1 04 1 999- 06- 30 2007- 1 1

• 30

1 02% 1 5% 75% 1 01 2007- 1 1

• 30

201 5- 1 2- 31

• 1

0% 57%

• 43%

97

Time period Absolute return (USD) MSCI Europe MSCI USA Relative return

• 40%
• 20%

0% 20% 40% 60% 80% 100% 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 MSCI Europe vs MSCI USA Days after first Fed rate hike

EUR/USD after first Fed rate hike (day of hike = 100)

% Months before and after first Fed rate hike MSCI EAFE vs MSCI USA

• Non-US stocks have on average
• utperformed US stocks by 14%

during the 12 months following the first FED rate hike; out of the nine examined periods since 1970, non-US stocks outperformed during six periods (by 22% on average) and US stocks outperformed during three periods (by 4% on average).

• The USD appreciation against the

EUR must subside in

• rder

for Europe to outperform the US market; this has been the case in four out of five periods following earlier FED hikes.

Source: MSCI, CB Fonder, Bernstein, Deutsche Bank Research

EUR has performed well relative to USD after prior FED hikes Non-US markets have outperformed the US market following prior FED-hikes

Source: Bernstein, CB Fonder Source: Deutsche Bank Research, CB Fonder

Analysis: Allocation – Europe versus the U.S.

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Source: Bernstein, CB Fonder

Profit margins in Europe and the U.S. Shiller-PE for Europe and the U.S. – difference at record levels

• The

large valuation gap between Europe and the U.S. becomes even more remarkable in light of current profit margins: in the U.S., margins are at very high levels while the levels in Europe are close to the historical average; the gap between the U.S. and Europe is at record levels.

• Profit margins in the U.S. should come

under pressure from a strong dollar, higher interest rate and rising wages; in Europe the opposite ought to hold true.

• The Shiller-P/E – the cyclically adjusted

P/E ratio – for US stocks is in the ninth decile with data going back to 1881  historically a very high valuation.

• The Shiller-P/E for European stocks, on

the other hand, is in the second decile with data since 1980  historically a very low valuation.

• The difference in valuation between

USA and Europe is at record levels.

Analysis: The end of stimulus – but not in Europe

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Source: BlackRock

• The central banks’ asset purchases, which have provided markets with huge amounts of liquidity, are on

net negative levels for the first time since the financial crisis.

• Fed ended its QE at year-end 2014; ECB launched its in the beginning of 2015 (and may increase it and

almost certainly prolong it). The substantial divergence in monetary policy suggests a good relative performance for Europe and that the pendulum (after more than seven years of expansive US monetary policy) swings in favour of European equities compared to U.S. equities.

Source: Deutsche Bank Research

Monthly asset purchases by Fed, ECB, BoJ and BoE

Note: 12m rolling average Source: BlackRock, Deutsche Bank Research, CB Fonder

Change in central bank assets, 2009-2015

Analysis: High expectations?

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Expectations for 2016 are low by historical standards

• The analysts’ expectations has, since

2011, been too high, which has caused constant downward revisions; the market has been pushed higher only by multiple expansion.

• Since

2011, earnings growth expectations in December has been about 10% for the next year, but the

• utcome has been little more than zero

at best.

• The

expectations for 2016 was, however, only 5% in December 2015. They have been lower only once since 1998: the expectations for 2009, at the end of 2008, was even lower…

The falling oil price contribute to growth – to an extent that might be underestimated

• There

is an inverse relationship between oil prices and GDP growth in the G7 countries (Europe, Japan and the US): a falling oil price leads to higher GDP growth, with growth lagging 18 months.

• The sharp fall in the oil price may,

given the historical correlation with GDP growth, raise the growth rate in G7 countries to 4% in 18 months.

Source: Bernstein, Deutsche Bank Research, Barclays, FT.com, CB Fonder Source: Bernstein, CB Fonder Source: FT.com (Barclays) Source: Deutsche Bank Research

Analysts’ expectations has been too high since 2011; the market has been pushed higher only by multiple expansion

• 60%
• 50%
• 40%
• 30%
• 20%
• 10%

0% 50 100 150 200 250 300 350 400 450 500 550 600 650 1999-07-05 2000-09-04 2006-05-09 2007-07-16 2010-04-15 2011-02-17 2012-03-16 2013-05-22 2014-09-04 2015-04-15

Analysis: The market – historical drawdowns

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Source: MSCI, CB Fonder

Number of days

Study of historical drawdowns for MSCI Europe Net, daily data in EUR

Most drawdowns has been 10% in a short time period and recovered within 100 days. After around 200 days the market has, historically, either turned up or sharply down.

= we are here (as of 15 January 2016)

Our take: MSCI Europe Net peaked 200 days ago (April 2015) which, according to the model, is a critical point: in 2011 the market turned upwards, while the 2000 and 2007 drawdowns saw sharp declines. What is worrying is that we now see a clear negative trend with continually lower tops and bottoms.

Drawdown Market peaks

• 60%
• 50%
• 40%
• 30%
• 20%
• 10%

0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 1972-08-31 1976-01-31 1981-08-31 1987-09-30 1990-06-30 1992-05-31 1994-01-31 1998-07-31 2000-08-31 2007-05-31 2010-03-31 2011-04-30 2012-02-29 2015-05-31

Analysis: The market – historical drawdowns

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Source: MSCI, CB Fonder

Number of months

= we are here (as of 15 January 2016)

Drawdown Market peaks

Study of historical drawdowns for MSCI Europe Net, monthly data in EUR

Our take: MSCI Europe Net peaked more than 8 months ago (April 2015). Prolonged drawdowns tend to be cause for concern: ”the bigger the top, the steeper the drop”. With data going back to 1969 we have only seen such a lengthy drawdown on four prior occasions: 1972, 1976, 2000 and 2007. In one case (1976) the market bottomed at -18%, in the other three cases the decline amounted to 40-50%.

25 50 100 200 400 800 1600 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 25 50 100 200 400 800 1600 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 25 50 100 200 400 800 1600 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 25 50 100 200 400 800 1600 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Analysis: The market – long-term trend

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Real return (inflation adjusted) and long-term trend (local curr., incl. div.)*

MSCI USA MSCI United Kingdom MSCI France MSCI Switzerland

Source: MSCI, inflation.eu, CB Fonder *Logarithmic scale

= Year before large drawdown

+6.0%

+X.X% = Long-term trend. Return p.a.

+6.6% +6.7% +6.4%

• 100%
• 50%

0% 50% 100% 150% 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 MSCI USA MSCI UK MSCI France MSCI Switzerland

Analysis: The market – long-term trend

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Deviation from trend for each respective market

Source: MSCI, inflation.eu, CB Fonder

Our take: The year before prior large drawdowns (here: 1972, 1986, 1989, 1999, 2006), we have seen a positive deviation from the long- term trend (>0% on the y-axis) in 80% of the cases above. This suggests that we are not facing a significant drawdown, given that the US as well as the three largest markets in MSCI Europe are below the long-term trend (i.e. a negative deviation, <0% on the y-axis). However, the current deviation from the trend is similar to that during the ‘70s and ’80s – a period during which we saw larger negative deviations from the trend than we have today.

= Year before large drawdown

What can go wrong? A lot, as always…

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Small Medium Big Huge

Impact

Low Medium High

Probability

1 2 3 4 5 6

Downside risks

Unknown unknowns (black swans etc.) The expectations in the market cannot be met; low oil price, a weak euro and expansionary fiscal and monetary policy is not enough – what then? Hard landing in Brazil, China and Russia Brexit A strong USD and/or prematurely interest rate hikes (compare 1937) suppresses the U.S economy. Geopolitics: Russia, Japan/China, North Korea, IS etc.

7

Grexit

1 2 3 5 6 7 4

• 4%
• 2%

0% 2% 4% 6% 8% 10% Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 CB European Quality Fund Sicav A vs MSCI Europe Net 90 95 100 105 110 115 120 125 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 CB European Quality Fund Sicav A MSCI Europe Net

The investment case for CB European Quality Fund

CB European Quality Fund

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Source: MSCI, CB Fonder

• Long-term

structural growth in mature industries; proven management and stable profit growth.

• Competitive returns and lower risk than the benchmark, MSCI

Europe Net. Consistent outperformance against the index during drawdowns.

• An ethical and sustainable framework: no exposure to alcohol,

pornography, gambling, tobacco, weapon and fossil energy (stranded assets).

• Concentrated portfolio: 28 holdings today; Active Share 90%.
• The

distributing share class, SICAV D, pays a dividend amounting to 6% of the NAV each year (ex date: October 31).

The fund vs index, 1 year, as of 15 January (EUR)

+8.0% +3.6%

• 4.0%

Share classes

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CB European Quality Fund, SICAV A

• Management Fee: 1.5%
• Performance Fee: No
• Dividend: No
• ISIN: LU0112589485

CB European Quality Fund, SICAV I

• Management Fee: 0.5%
• Performance Fee: 20% of outperformance vs. MSCI Europe Net, with collective, eternal and

relative High-Water Mark; the share class is 6% below HWM as of 31 December 2015

• Dividend: No
• ISIN: LU0806934948

CB European Quality Fund, SICAV D

• Management Fee: 1.5%
• Performance Fee: No
• Dividend: Yes, 6% of NAV as of 31 October each year
• ISIN: LU1179404386

Fund facts

CB European Quality Fund

30

• Fund name:

CB European Quality Fund

• Manager:

CB Asset Management AB

• Domicile:

Luxembourg

• Mgmt company/Custodian:

Luxcellence / CACEIS Investor Services, Luxembourg

• Auditor:

PricewaterhouseCoopers S.ár.I.

• UCITS:

Yes

• Currency:

EUR

• Liquidity/NAV:

Daily/Daily

• Subscription/redemption fee:

SICAV A: No/Yes*, SICAV I: No/No, SICAV D: No/Yes*

• Strategy launch:

November 1995

• Minimum investment:

No

• ISIN-code/Bloomberg:

SICAV A: LU0112589485 / EUREUEA LX SICAV I: LU0806934948 / EUREQIC LX SICAV D: LU1179404386 / CEQEEFD LX

*Max 1%, dependent on client relationship

Disclaimer

CB European Quality Fund

31 Issued by CB Asset Management AB. It is intended solely to provide certain information (the “Information”) about CB European Quality Fund and CB Save Earth Fund (the “Funds”). CB Asset Management AB has taken all reasonable care to ensure correctness and accuracy of the Information published in that Article, at the time of its publication. Share prices and values may increase or decrease and investments are always associated with a risk of loss. Past performance is never a guarantee for future performance. The information provided in this report is what we to our knowledge believe are correct based on the information made available to us for the purpose of this

• document. No representation or warranty of any nature, express or implied, is made about its completeness,

accuracy, reliability or suitability. Nothing contained in this document shall be deemed to constitute a financial, legal, tax or other advice of any kind and no information in this document shall constitute or deem to constitute a solicitation or an offer to purchase, or invest in, any financial products which are referred to on it. The offering of the shares of the Funds is restricted in many jurisdictions and must not be marketed or offered in

• r to residents of any such jurisdictions unless such marketing or offering is made in compliance with applicable

exemptions for the private placement of collective investment schemes and other applicable jurisdictional rules and regulations. It is the responsibility of every recipient to inform themselves and observe applicable regulations and restrictions in their jurisdiction. Potential investors in the Funds should inform themselves of the applicable laws and regulations of the countries

• f their citizenship, residence or domicile and which might be relevant to the subscription, purchase, holding,

conversion and redemption of shares in the Funds. Should you wish to obtain further information on the Funds, please consult our website, where the Prospectus, the latest available annual and semi-annual reports, and the Key Investor Information Document (KIID) of the Funds are provided.

EQF Europe Europe Large Cap Europe Mid Cap Europe Small Cap EQF 1.00 0.82 0.81 0.84 0.80 Europe 1.00 1.00 0.97 0.89 Europe large cap 1.00 0.95 0.88 Europe mid cap 1.00 0.95 Europe small cap 1.00 EQF Europe Europe Value Europe Growth EQF 1.00 0.82 0.70 0.89 Europe 1.00 0.97 0.97 Europe Value 1.00 0.89 Europe Growth 1.00 EQF Europe World BRIC EQF 1.00 0.82 0.81 0.53 Europe 1.00 0.89 0.64 World 1.00 0.64 BRIC 1.00

• Appendix. Correlations

CB European Quality Fund

32

The fund’s (EQF) correlation with different MSCI indices, 5 years*

Regional and country indices Investment style indices Market cap indices

With a relatively low correlation compared to its benchmark index, MSCI Europe, as well as other important indices, the fund will add diversification to most

• portfolios. The fund has the

highest correlation with MSCI Europe Growth.

*Monthly data for the period 31 December 2010 – 31 December 2015 (EUR) Source: MSCI, CB Fonder